Protect Against Collisions and More If you drive a car in the United States, liability insurance must cover it. This type of policy pays for medical and property damage resulting from a vehicular accident. You can also purchase comprehensive and collision insurance to cover other costs. These additional coverages help protect the value of your car should it be damaged. If you are calculating how much it will cost to buy a car, you need to take into consideration the cost of insurance as well. In this article, we’ll review the basics of car insurance and the best auto insurance companies in America, including costs, pros and cons. This is a brief introduction to automobile coverage. Liability Coverage When an accident occurs, liability insurance covers you, household members and authorized drivers for the costs associated with property damage and bodily injury. It covers the cost to repair or replace property damage that you caused. [youmaylike] You are also covered if you cause the bodily harm or death to someone else while you are driving the car. This includes medical expenses, loss of income and specified legal defense costs. Collision Insurance If you are involved in a collision, this type of insurance will help pay for repairing or replacing your vehicle. If the collision is your fault, the coverage may extend to other damaged vehicles involved in the accident. States do not mandate that you buy collision insurance, but your lender or car dealer will if you finance or lease the car. Policies offer a range of deductibles, which is how much you’ll have to pay for repairs before the insurance kicks in. Larger deductibles lower the policy premiums but expose you to more out-of-pocket expenses if a collision occurs. Comprehensive Insurance Comprehensive insurance covers damage to your car that occurs for reasons other than a collision, including theft, fire, vandalism, weather and natural disasters. This coverage is often required if you finance your automobile. You can add riders to this insurance to provide coverage of additional costs, including auto towing, glass repair, daily rental while your car is in the shop and emergency roadside service. As with collision insurance, you can set the deductible on your comprehensive insurance policy to cut your premium costs. Gap Insurance If your car is severely damaged in an accident or other incident, you might find that your comprehensive and collision damage won’t provide enough coverage to pay off the amount you owe on the vehicle. Many policies pay only the fair market value of a totaled car, which might be only 80% of the amount you owe. You can buy additional insurance to plug this gap and ensure you can pay off the car loan in full if the vehicle is destroyed or stolen. Normally, car leases require you to buy gap insurance. If you pay cash or pay off your loan, you can save money by avoiding or dropping gap insurance when no longer needed. Top Five Auto Insurers These five insurers all offer full coverage policies and many additional services. Amica Amica is a superstar among car insurers, winning accolades from Consumer Reports and J.D. Powers. It’s known for handling the claims process smoothly. The average annual cost for full coverage: is $1,360. Pros You can have your car repaired at any body shop, without restrictions. Offers a premium package which, for an additional cost, provides full glass coverage, rental coverage, good driving rewards and identity fraud monitoring. Superior financial stability rating from A.M. Best. Cons Missing some discounts, such as military, low-mileage and prepay discounts. Must speak on the phone to get a quote. Sparse website when it comes to customer education. State Farm State Farm is the country’s largest multi-line insurance company. It excels in customer service and regularly garners high marks from customers. The average annual cost for full coverage: is $1,337. Pros Superior financial stability rating from A.M. Best. Excellent online quote tool, getting customers a quote in as little as five minutes. Easy claim handling and top service from its more than 18,000 agents and its easy-to-use mobile app. Cons Doesn’t offer coverage for new car replacements or uninsured motorists. Missing prepayment and automatic payment discounts. The Hartford While only 11th in size, The Hartford is big when it comes to policy options. It offers rates based on your actual driving as well as full replacement of new cars when destroyed shortly after purchase. Average annual cost for full coverage: N/A. Pros Solid benefits, including superior roadside assistance and towing programs. High marks from customers for their purchase experiences. One of the few insurers with mechanical breakdown coverage for out-of-warranty repairs. Cons Mediocre service interaction according to J.D. Power surveys. Sparse online learning materials. Geico Geico is the second-largest U.S. car insurer. It is a favorite among tech-savvy geeks who appreciate the insurer’s mobile app and excellent online service. The average annual cost for full coverage: is $1,627. Pros Geico offers plenty of ways to save, such as multi-vehicle, driving history and vehicle safety equipment discounts. Special savings for active and retired military members and federal employees. Full-featured mobile app for getting quotes, buying insurance, managing your policy, submitting claims, summoning roadside assistance and making payments. Cons Human help may be in short supply, as just about everything is handled online. No gap insurance is offered. USAA No insurer matches USAA for service to military members. Unfortunately, it's only available to active service members, their families and retired veterans. Average annual cost for full coverage: $896. Pros Superior financial stability rating from A.M. Best. Top-ranked purchase experience score from J.D. Power. Cons Missing gap coverage. Doesn’t offer interior vehicle coverage or new car replacement coverage. Limited availability. The Right One for You Competition in the insurance industry helps drive down prices and prompts insurers to offer money-saving features. For example, your carrier might reward you for a safe driving record and for having a long-term relationship with the insurer. The right insurer for you is highly rated for service, offers the exact coverage you want and does so at an unbeatable price. You should always gather multiple quotes before selecting an insurer, and make sure you get credit for all applicable discounts.
How to Structure Your Business
When you launch your business, you face many decisions, but none is more important than how you structure your company. If you alone are the business owner, you can set the company up as a sole proprietorship with minimum preparation.
If you and at least one other person are owners, you can create a partnership structure. Both are unincorporated, pass-through structures and therefore pay no corporate income tax. The IRS considers a sole proprietorship and a partnership as no different from the individual owner(s). However, limited liability structures are available for those who want to establish a separate entity, and we’ll touch on this at the end of the article.
Read on to learn the pros and cons of setting a company up as sole proprietor vs partnership.
Sole Proprietorship
In a sole proprietorship, the owner runs the business, without partners (other than a spouse). You can start a sole proprietorship without filing any papers or taking any legal steps. However, your local government might require you to secure a business license and permits to operate.
For example, if you started business as a plumber or electrician, you would probably need to obtain the proper license. You have the option to Do Business As (DBA) a trade name, which is easy to do online. But a DBA doesn’t separate the owner from the business.
As the owner, you are personally liable for all debts and tax payments. In fact, the IRS considers your sole proprietorship to be a disregarded entity, and you file your business income and losses as part of your personal return. The business files no separate tax return. In other words, the sole proprietorship is a pass-through entity because income, expenses and the obligation to pay taxes flow directly to you, the owner.
You must pay self-employment taxes (for Social Security and Medicare) as part of your quarterly estimated payments to the IRS. The sole proprietorship provides your personal assets no protection from liabilities arising from debts, legal actions and other causes.
You can dissolve a sole proprietorship any time by informing the federal, state and local taxing authorities that you no longer run the business. As the sole proprietor, you have exclusive control over how you run the business. You make the management decisions, and when you die, the company dies with you.
Sole Proprietorship Pros and Cons
The advantages of a sole proprietorship are:
- It’s easy and quick to launch, with few, if any, forms to complete.
You have total control over the business, including all the money earned by the business. - As the sole manager, you can quickly respond to problems and opportunities.
- You have less involvement with the government, and you don’t have to keep any special incorporation records or minutes of annual meetings.
You don’t file a separate tax return and you don’t have to prepare financial reports such as a balance sheet.
The disadvantages of a sole proprietorship are:
- The business owner is liable for all business obligations and debts. The liability extends to your personal assets (except for a 401(k) and, partially, an IRA). You may need to secure additional insurance coverage against physical loss or personal injury.
- If the owner dies, becomes incapacitated or physically impaired, the business may have to terminate.
- It can be difficult to raise financing because the owner has fewer assets.
- You call all the shots, which means you could make a bad decision that kills or hurts the company.
- Your business might seem less professional than do other company structures.
Partnerships
A partnership is a business owned by two or more individuals. To establish one, you first register the partnership with your local Secretary of State. You must also give the business a name or use a partnership name consisting of the partners’ last names. You can also register a DBA if you want to operate under a different name.
You then obtain any necessary permits and licenses. These vary by state, locality and industry. You might also create a partnership agreement, which although not legally required, is a good idea. A partnership agreement lays out the responsibilities of each partner, how decisions are made, how profits are divided, how disputes are resolved, and how to change or dissolve the partnership.
Like a sole proprietorship, a partnership is a pass-through entity that pays no income taxes on its own. However, the IRS requires partnerships to annually file Form 1065, which reports the partnership’s income, gains, losses, credits, deductions and so forth.
Partnership Pros and Cons
The advantages of a partnership are:
- The company can survive the death or departure of a partner.
- It can be easier to raise financing because multiple owners have a greater number of assets.
- Decision-making is shared, meaning that mistakes might not be attributed to a single person.
- Your business will appear more professional.
The disadvantages of a partnership are:
- It requires more paperwork to establish a partnership and report annually to the IRS.
- The partners are liable for all business obligations and debts. The liability extends to their personal assets. This can make it harder to secure loans or attract investors.
- Control is shared among the partners, which can slow down decision-making.
- It can take longer to respond to opportunities and challenges.
- You face more government involvement.
- You must file an annual tax information.
Limited Liability Alternatives
A sole proprietor can limit personal liability by setting up a Limited Liability Company (LLC), a Chapter S corporation or Chapter C corporation. An LLC is a pass-through entity for tax purposes. It is set up as a sole proprietorship if there is only one owner. Otherwise, it is treated as a partnership. A Chapter S corporation is also a pass-through entity, but a Chapter C corporation files its own return and pays income taxes on its profits.
Partnerships can obtain liability protection by structuring themselves as limited partnerships or limited liability partnerships. In a limited partnership, the general partners have 100% liability for the company, but limited partners are liable for only their capital contributions. In a limited liability partnership, all partners have limited liability.